In Revenue Capital
December 6, 2023

Leveraging Human Insight and AI to Prevent Fraud Online

Author: Sainna Christian

As digital transactions explode in volume across industries, fraudsters are finding more opportunities than ever to scam companies and consumers. However, the powerful combination of human intelligence and AI technology provides a robust solution for fighting back.

This comprehensive article explores the surging fraud enabled by the growth of digital payments, how human analysts and AI complement each other, and best practices for building a multi-layered fraud protection strategy.

The Rising Tide of Digital Fraud in the Connected Economy

E-commerce, financial services, gig platforms, and digital transactions have grown tremendously. However, fraud has dangerously grown right alongside this digital expansion:

  • Identity theft resulted in $56 billion in losses in 2020, according to a report from Javelin Research1, impacting 1 in 15 Americans.
  • Payment card fraud hit $28.65 billion globally in 2021, per data from Juniper Research2, driven by a spike in e-commerce fraud.
  • Phishing reports grew by 31% YoY in 2022, according to the Anti-Phishing Working Group3, leaving businesses and consumers more vulnerable to social engineering tactics.
  • Account takeover fraud jumped by 72% from 2020 to 2021, according to Sift4, one of the top threats reported by merchants.
In Revenue Capital
In Revenue Capital

The convenience and reach of digital payments and anonymous online environments have proved ripe territory for criminals seeking to game systems and exploit users. Some common tactics include:

  • Creating fake user accounts with stolen consumer identity data to make fraudulent purchases.
  • Tricking users via phishing links and social engineering to gain login credentials or authorize phony payment requests.
  • Hacking into legitimate user accounts to make large unauthorized transactions to money-muling accounts.
  • Filing fraudulent refund requests by pretending a product was never delivered or was unsatisfactory.
  • These types of scams result in denied payments, reversed transactions, inventory losses, and damaged trust in businesses. Consumers are also exposed to fraud, account abuse, and the hassle of reclaiming stolen funds.

As digital engagement continues to accelerate across sectors, the need for fraud protection grows parallel. Gartner forecasts that by 2024, overall fraud levels will rise by 25% as companies transform digitally.

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Blending the Unique Strengths of Human Insight and AI

Artificial intelligence and machine learning have become invaluable tools for detecting digital fraud by identifying suspicious patterns and anomalies in massive data streams that humans simply can’t analyze to the same degree. But people still play an equally crucial role in fraud defense.

Human analysts possess unique abilities that even the most advanced AI lacks:

  • Spotting anomalies and activity outside of previous patterns that models have yet to observe.
  • Incorporating holistic context and subjective judgment to validate edge cases.
  • Communicating directly with customers to resolve disputes and provide reassurance.
  • Anticipating new types of fraudulent tactics not seen in historical training data.
  • Supplying training data to improve algorithms and minimize false positives.

Some examples of humans providing an indispensable line of defense:

  • An analyst spots an unusual series of micropayments that triggers further investigation before any AI model flags it as suspicious.
  • A legitimate customer gets incorrectly flagged as fraudulent – a quick call from a human agent quickly resolves the mistake.
  • Fraud analysts review edge cases that automated systems couldn’t definitively classify as fraudulent or legitimate.
  • Agents provide empathy and assistance to victims of identity theft and account takeover that pure AI lacks.

The most influential modern fraud platforms strike an optimal balance between lightning-fast automated detection and human oversight. This hybrid approach brings out the best in both humans and machines.

The most influential modern fraud platforms strike an optimal balance between lightning-fast automated detection and human oversight.

Building a Robust Fraud Protection Strategy

For today’s digital businesses, having protection requires thinking beyond any single solution. A genuinely robust fraud strategy requires seamless orchestration between cutting-edge technology and skilled fraud teams across multiple layers:

  • AI and advanced analytics: Instantly identify highly suspicious patterns and anomalies in massive data flows using neural networks and deep learning techniques.
  • Transaction monitoring 24/7: Track abnormal behaviors in real time and block fraudulent transactions as they occur.
  • Identity verification: Validate user identities and account information to prevent fake account creation.
  • Manual reviews: Trained analysts investigate less clear-cut anomalies, disputes, and edge cases missed by AI.
  • Customer communication: Skilled agents proactively contact impacted users to resolve flagged issues quickly.
  • Ongoing model training: Continuously provide AI with new training data and rules to keep pace as fraud evolves.

This orchestrated blend of automation and human touch provides comprehensive fraud monitoring and protection. The technology supplies speed and pattern recognition, while human specialists bring intuition, emotional intelligence, and adaptability. Together, they offer 24/7 monitoring with the flexibility to handle established fraud tactics and new threats.

Companies no longer need to choose between 100% manual or fully automated systems. By leveraging Hugo’s expertise in AI-enabled fraud protection backed by dedicated global fraud analysts, enterprises across industries can lock down the digital economy for honest businesses and consumers alike. Reach out today to learn more.